Intercontinental Exchange drawing bullish views

GregMorcroft

NEW YORK (MarketWatch) -- Several analysts in recent days have raised their price targets and earnings estimates for Intercontinental Exchange Inc., citing the electronic energy-trading company's strong volume growth and aggressive plans to expand into agricultural commodities.

Founded in 2000, Intercontinental
ICE, -0.01%
operates a global electronic futures and over-the-counter marketplace for an array of energy products. It also offers market data services for both futures and OTC markets through its ICE Data subsidiary.

Earlier this week, the company said its London-based ICE futures unit posted a 136% jump in third-quarter volume from last year. The company said commissions at its other main business, trading energy commodities like crude oil and natural gas, rose about 115% from 2005 third quarter levels.

And, in September, the company unveiled a $1 billion agreement to acquire the New York Board of Trade.

The firm, also known as ICE, said it sees the deal adding to results within 12 to 18 months of the closing. Additionally, ICE estimates that the transaction could yield more than $50 million in total pretax synergies, and that the merger will close in the first half of 2007.

On Wednesday, Bear Stearns analysts raised their earnings per share estimate for the company's third quarter by 37%, to 70 cents from 50 cents, and boosted full year 2006 and 2007 estimates by 20% and 15% respectively.

The analysts, who hosted a dinner Tuesday night with company executives, said the meeting helped to renew "our enthusiasm for ICE stock and it continues to be our favorite name among the U.S. exchanges."

The analysts said they believe concern about competition from growing electronic trading in similar products on rival exchanges like the New York Mercantile Exchange are overstated. They also said they believe the Board of Trade purchase will be profitable and more efficient because it will move more commodities trading to an electronic platform and out of the pits.

"We believe ICE's assumptions around synergies will prove very conservative," the analysts said. "Based on our updated net income projections, we believe the combined ICE/NYBOT could generate EPS of $4 in 2008."

On Tuesday, analysts at Morgan Stanley raised their third quarter earnings estimate for ICE to 73 cents from 67 cents, citing better-than-expected futures and OTC volume.

"Although we are not forecasting further market share gains by ICE in the WTI market given Nymex's adoption of electronic trading, we believe that ICE will continue to benefit from a growing market," the analysts wrote.

The latest upgraded analyst estimates followed one by Rich Repetto at Sandler O'Neill, who in late September raised his estimate for third-quarter earnings to 67 cents a share, up from 61 cents, saying September futures and over-the-counter trading appear to be outperforming previous estimates.

"OTC commissions could provide meaningful upside in the quarter," Repetto wrote. The analyst raised his outlook for 2006 annual earnings to $2.14 a share vs. $2.02 a share previously, and his estimate for 2007 to $2.80 a share vs. $2.58.

Repetto also raised his estimates for what a combined ICE and New York Board of Trade, which the company plans to buy, would earn in combination.

"We are also raising our pro forma estimate with NYBOT based on adjustments to the conservative guidance the company has provided on the merger," Repetto said.

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